Question

Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of April 30 is given below:

Minden Company Balance Sheet April 30
Assets
Cash	$	9,400
Accounts receivable		78,500
Inventory		44,000
Buildings and equipment, net of depreciation		221,000
Total assets	$	352,900
Liabilities and Stockholders’ Equity
Accounts payable	$	72,000
Note payable		19,700
Common stock		180,000
Retained earnings		81,200
Total liabilities and stockholders’ equity	$	352,900

The company is in the process of preparing a budget for May and has assembled the following data:

1. Sales are budgeted at $256,000 for May. Of these sales, $76,800 will be for cash; the remainder will be credit sales. One-half of a month’s credit sales are collected in the month the sales are made, and the remainder is collected in the following month. All of the April 30 accounts receivable will be collected in May.

2. Purchases of inventory are expected to total $188,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the April 30 accounts payable to suppliers will be paid during May.

3. The May 31 inventory balance is budgeted at $83,000.

4. Selling and administrative expenses for May are budgeted at $91,500, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $4,000 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $435 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $7,000 will be purchased for cash during May.

7. During May, the company will borrow $23,100 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

Required:

1. Calculate the expected cash collections from customers for May.

2. Calculate the expected cash disbursements for merchandise purchases for May.

3. Prepare a cash budget for May.

4. Prepare a budgeted income statement for May.

5. Prepare a budgeted balance sheet as of May 31.

2

Problem 9-20 Activity and Spending Variances [LO9-1, LO9-2, LO9-3]

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.

After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March:

	Cost Formula	Actual Cost in March
Utilities	$16,300 + $0.16 per machine-hour	$	21,780
Maintenance	$39,000 + $2.00 per machine-hour	$	78,800
Supplies	$0.70 per machine-hour	$	15,900
Indirect labor	$94,700 + $1.40 per machine-hour	$	127,800
Depreciation	$67,700	$	69,400

During March, the company worked 21,000 machine-hours and produced 15,000 units. The company had originally planned to work 23,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

3

Exercise 9-9 Planning Budget [LO9-1]

Wyckam Manufacturing Inc. has provided the following information concerning its manufacturing costs:

	Fixed Cost per Month			Cost per Machine-Hour
Direct materials				$	5.50
Direct labor	$	42,200
Supplies				$	0.30
Utilities	$	1,100		$	0.25
Depreciation	$	14,700
Insurance	$	11,100

For example, utilities should be $1,100 per month plus $0.25 per machine-hour. The company expects to work 4,100 machine-hours in June. Note that the company’s direct labor is a fixed cost.

Required:

Prepare the company’s planning budget for June.

4

A monthly sales budget for Supermix for the third and fourth quarters of the year follows.

	Budgeted Unit Sales
July	73,000
August	78,000
September	88,000
October	68,000
November	58,000
December	48,000

Required:

1. Prepare a production budget for Supermix for the months July, August, September, and October.

3. Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July, August, and September, and for the quarter in total.

Answer 1

1)	Minden Company
	Schedule of Cash receipts from customers
	Accounts Receivable(As per balance sheet)	$          78,500.00
	Cash Sales(Given)	$          76,800.00
	Credit Sales collected in May=($256000-$76800)*50%	$          89,600.00
	Total cash collection for the month of May	$       2,44,900.00
	Schedule of Cash Payment for Purchases
2)	Accounts Payable(As per balance sheet)	$          72,000.00
	40% of May Purchases=($188000*40%)	$          75,200.00
	Total cash paid for mercendise purchase	$       1,47,200.00
	Minden Company
	Cash Budget
3)	For the Month of May
	Months	May
	Cash Balance	$             9,400.00
	Add: Collections from customer	$       2,44,900.00
	Total Cash available	$       2,54,300.00
	Less: Disbursement
	Mercendise Purchase	$       1,47,200.00
	Selling & Administrative expenses	$          91,500.00
	Equipment Purchase	$             7,000.00
	Total Disbursemnts	$       2,45,700.00
	Excess/Deficiency of receipts over=(i)	$             8,600.00
	disbursements
	Borrowing Note	$          23,100.00
	Repayment of Note(As per Balance Sheet)	$        (19,700.00)
	Interest	$              (435.00)
	Total Financing=(II)	$             2,965.00
	Cash Balance ,ending=($8600+$2965)=(i)+(II)	$          11,565.00
4)	Minden Company
	Budgeted Income Statement
	For the Month of May
	Sales=(A)	$       2,56,000.00
	Cost of goods sold=($44000+$188000-$83000)=(B)	$       1,49,000.00
	Gross Margin=(C )=(A)-(B)	$       1,07,000.00
	Selling and Administrative Expenses=(D )	$          91,500.00
	Depreciation=(E )	$             4,000.00
	Net Operative =(F )=(C )-(D )-(E )	$          11,500.00
	Less: Interest=(G )	$                435.00
	Net Income=(F )-(G)	$          11,065.00
	Cost of goods sold=Opening Inventory+Purchases-Closing Inventory
5)	Minden Company
	Budgeted Balance Sheet
	As AT May 31st
	Assets
	Cash	$          11,565.00
	Accounts Receivable=($140000*50%)	$          89,600.00
	Inventory	$          83,000.00
(*)	Building and Equipment	$       2,24,000.00
	Total Assets	$       4,08,165.00
	Liabilities & Stockholders Equity
	Accounts Payable=($188000*60%)	$       1,12,800.00
	Note Payable	$          23,100.00
	Common Stock	$       1,80,000.00
(**)	Retained Earnings	$          92,265.00
	Total Liabilities & Stockolders Equity	$       4,08,165.00
	Building and Equipment
(*)	Beginning Balance	$       2,21,000.00
	Add: Refrigerator Purchased	$             7,000.00
	Less: Depreciation	$           -4,000.00
	Ending Balance	$       2,24,000.00
(**)	Retained Earnings
	Beginning Retained Earnings	$          81,200.00
	Add: Net Income	$          11,065.00
	Ending Retained Earnings	$          92,265.00